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A Good Vs. Bad Loss Ratio

Monday, February 10, 2020
Tony Hopkins
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By: Tony Hopkins, CPCU, CIC, CRM, Vice President / Risk Advisory Solutions

What is a good or bad Loss ratio? In our last video, we covered what a loss ratio is and why you SHOULD know yours. First off, why would you want a low or good loss ratio?

It’ll help you obtain the lowest premium, which is everyone’s goal in insurance. When determining how good or bad your loss ratio is, it’s important to have context. Let’s look at a live example spreadsheet.  60% is typically a carrier’s break-even point for losses.  The remaining 40% of your premium dollar is spent on “expenses” such as claims handling, insurance company filing fees, taxes, overhead, agent commissions, and attorney fees.

  • So, a 60% loss ratio or above is bad, it’s the point at which you’re losing money for your underwriters – in our illustration, this is red
  • 30-60% is just OK; it’s about average to slightly above average – in our illustration, this is yellow
  • 0-30% is great; it’s a loss ratio that underwriters would love to have – in our illustration, this is green.  When your loss ratio is this low, it gives you the most negotiating clout available and is the point when underwriters start sharpening their pencil on your premium

It’s also helpful to know your loss ratio by the line of coverage, such as workers’ compensation, auto, property, and general liability. The timeframe most underwriters look at is five years. So, having your loss ratio split out this way gives you essentially your insurance profit & loss statement from the underwriter’s perspective.

In summary, having a good loss ratio is the best way to reduce your future insurance premiums.  If your loss ratio is not great, there’s more that can be done by putting strategies in place to reduce your losses.  If you’re interested in learning more, please don’t hesitate to contact me directly, or another member of your Horton team.   

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.

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